Nonfinancial monitoring falls short

Internal Auditor, Feb, 2005 by D. Salierno

SENIOR EXECUTIVES AND board members worldwide say their firms have difficulty monitoring nonfinancial drivers of organizational performance, according to a recent survey conducted by the Economist Intelligence Unit on behalf of Deloitte Touche Tohmatsu. In the Dark: What Boards and Executives Don't Know About the Health of Their Businesses shows that, although the majority of surveyed executives cite nonfinancial factors as critical to corporate success, only about one-third are proficient at monitoring them.

The cross-industry study, which polled 249 executives and board members around the globe, found that most respondents expressed a need for more nonfinancial information on their companies' ability to satisfy customers, deliver quality products and services, operate efficiently, and develop new products and services. Almost 75 percent said their companies were under increasing pressure to monitor nonfinancial performance indicators, and 92 percent said their board directors were responsible for monitoring both the financial and nonfinancial measures of their company's performance.

Respondents commented on the quality of information supplied to them in several areas of nonfinancial performance. On average, approximately one-third said their companies are given good or excellent information in areas such as the company's impact on society and the environment, employee commitment, relations with suppliers and other external stakeholders, and product/service innovation. Slightly more than half the executives and board directors receive this level of information on product/service quality and brand strength, and 56 percent receive adequate or better information on the quality of the firm's corporate governance and management processes.

"It takes more than tracking financial performance to properly mind the store." said William G. Parrett, global chief executive officer of Deloitte. "And most board members and executive acknowledge that the tools and systems to monitor nonfinancial performance are either underdeveloped or are missing altogether."

When asked why they lacked information on their firm's nonfinancial indicators, respondents identified two main barriers: the absence of developed tools for analyzing nonfinancial measures and skepticism that such measures directly impact the bottom line.

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For more information on In the Dark: What Boards and Executives Don't Know About the Health of Their Businesses, visit Deloitte's Web site at www.deloitte.com.